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Characterisation of optimal dual measures via distortion

Monoyios, Michael (2006) Characterisation of optimal dual measures via distortion. Decisions in Economics and Finance, 29 . pp. 95-119.

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Abstract

We derive representations for optimal martingale measures in a two-factor Markovian model, by seeking ramifications of a distortion power solution (Zariphopoulou, 2001) of the primal utility maximisation problem, for the dual problem. This provides an alternative to existing methods in the literature for characterising optimal measures, and gives new results in the form of a novel representation for the dual stochastic control problem, and in the form of Esscher transform relations between the optimal measure and the minimal measure.

Item Type:Article
Subjects:O - Z > Partial differential equations
O - Z > Probability theory and stochastic processes
Research Groups:Mathematical and Computational Finance Group
ID Code:466
Deposited By:Michael Monoyios
Deposited On:06 Dec 2006
Last Modified:20 Jul 2009 14:21

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